COMMISSIONER OF INCOME TAX (C)-III Vs. M/S FLAKES-N-FLAVOURZ NEW DELHI AND ANR

June, 13th 2014

IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 22.05.2014
W.P.(C) 830/2013 & CM No.1599/2013
COMMISSIONER OF INCOME TAX (C)-III ..... Petitioner
versus
M/S FLAKES-N-FLAVOURZ NEW DELHI AND ANR
..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr N.P. Sahni and Mr Nitin Gulati, Advocates
For the Respondents : Mr Parag Tripathi, Sr. Advocate with Mr Vivek Kohli, Mr Kunal
Bahri, Ms Shivambika Sinha and Mr Shwetank Tripathi, Advocates for
R-1
CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition is directed against the order dated 21.05.2012 passed
by the Income Tax Settlement Commission, Principle Bench, New Delhi on
an application for settlement under Section 245C(1) of the Income Tax Act,
1961 (,,the said Act). The only point urged by Mr Sahni appearing on
behalf of the petitioner/Commissioner of Income Tax is that the Settlement
Commission did not consider the material placed by the Commissioner of
Income Tax in his report under Rule 9 and wrongfully allowed the claim of
the respondent of deduction under Section 80-IB of the said Act. His
WP(C) 830/2013 Page 1 of 10
submission is that the finding of the Settlement Commission on the elements
of Section 80-IB are contrary to the record and are perverse, particularly
because the Settlement Commission had not examined the material that was
placed before it, which according to Mr Sahni would indicate that the
respondent was not entitled to the deduction under Section 80-IB of the said
Act.
2. On the other hand Mr Parag Tripathi, the learned senior counsel
appearing on behalf of the respondent submitted that the respondent had
made a disclosure of `1.765 crores which it had not earlier disclosed as part
of its income which it had earned from the sale of scrap in respect of the
period covered by the assessment years 2003-04 to 2009-10. Mr Tripathi
further submitted that it is wrong to state that the Settlement Commission
had not examined the issue of allowing of deduction under Section 80-IB of
the said Act. He submitted that the entire report under Rule 9 had been
examined by the Settlement Commission threadbare as would be evident
from the impugned order itself. He further submitted that all the conditions
necessary for the grant of deduction under Section 80-IB of the said Act
were satisfied and there was no material placed by the Revenue to contradict
the same. He further submitted that the Assessing Officer, in respect of the
assessment years 2005-06, 2006-07 and 2007-08, under
WP(C) 830/2013 Page 2 of 10
regular assessments done under Section 143(3) of the said Act, had, after
going into all the facts and circumstances and verifying the details, allowed
the deduction under Section 80-IB of the said Act. Furthermore, no
materials were found during the search and seizure operation which could
contradict the finding of the Assessing Officer with regard to the
respondents eligibility for deduction under Section 80-IB of the said Act.
3. Mr Tripathi also submitted that the scope of review under Article 226
of the Constitution, of an order passed by the Income Tax Settlement
Commission, was very limited and this Court could only interfere if the
conclusion of the Settlement Commission was contrary to the Income Tax
Act, 1961. Mr Tripathi placed reliance on the following four decisions of
the Supreme Court:-
1. R.B. Shreeram Durga Prasad v. Settlement Commission &
Another: (1989) 1 SCC 628;
2. Jyotendrasinhji v. S.I. Tripathi & Ors.: 1993 Supp (3) SCC
38;
3. Shriyans Prasad Jain v.Income Tax Officer & Ors.: 1993
Supp (4) SCC 727; and
4. Union of India & Others v. Ind-Swift Laboratories: (2011)
4 SCC 635
4. He also placed reliance on our recent decision in the case of CIT v.
Gopal Gupta: W.P.(C) 1208/2013 decided on 16.05.2014 wherein after
WP(C) 830/2013 Page 3 of 10
examining the aforesaid four Supreme Court decisions it was observed as
under:-
"13. It is apparent that the power of interference under
Article 226 is limited. It is evident that this Court under
Article 226 can only interfere with the Settlement
Commission if it is found to be contrary to the provisions
of the Act and that even if the Court disagrees with an
interpretation placed by the Settlement Commission on a
document, it cannot substitute its view in place of that of
the Settlement Commission unless and until the
interpretation given by the Settlement Commission is
clearly arbitrary and perverse.
xxxx xxxx xxxx xxxx
15. .....From all these decisions it is abundantly clear
that the scope of review under Article 226 of the
Constitution insofar as an order passed by the Settlement
Commission under Section 245 D (4) of the Income Tax
Act is concerned, is a very limited one. This Court
certainly cannot substitute its view in place of the
Settlement Commission particularly on point of
interpretation of a particular document. Interference can
only be made if there is a fault in the decision making
process and not with the decision itself. Even if this Court
feels that it would have arrived at a different decision, it
cannot interfere with the conclusion arrived at by the
Settlement Commission because this Court does not sit in
appeal over the decision of the Settlement Commission."
5. It is, therefore, clear that as this Court does not sit in appeal over the
decision of the Settlement Commission, we cannot interfere with the
findings of fact or law rendered by the Settlement Commission and we
certainly cannot substitute our view in place of the Settlement Commission
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unless and until the interpretation given by the Settlement Commission is
clearly arbitrary or perverse.
6. In the present case, we find that the issues raised in the Rule 9 report
and the respondents rejoinder thereto have been set out in detail in
paragraph 20 of the impugned order passed by the Settlement Commission.
We need not repeat the same for the sake of brevity. The submissions of the
parties have also been noted in paragraphs 21 to 23 of the impugned order.
After going through the same, the conclusions arrived at by the Settlement
Commission are to be found in paragraph 24 to 26 which are set out
hereinbelow:-
"24. The contentions of the learned CIT(DR), learned
AR and facts on record are considered carefully. The
case of the Department is that during the search and
seizure operations, incriminating documents/papers were
seized and certain facts came to the notice which showed
that the applicant was not manufacturing chewing
tobacco at the factory premises at Baddi, H.P. but outside
this area and therefore, the applicant is not entitled for
deduction under section 80IB of the Act. From the facts
on record, it is observed that the such claim of the
Department is without any basis or evidence. The
Department is not able to produce any incriminating
evidence either found during the search of later which
may substantiate their claim. It is found that allegations
were raised by the Department on the basis of series of
presumptions which have been satisfactorily rebutted by
the applicant by bringing out facts and figures which
show that the applicant was manufacturing chewing
WP(C) 830/2013 Page 5 of 10
tobacco as recorded in the books of account at Baddi unit
(H.P.) and entitled for deduction u/s. 80IB of the Act on
the amounts claimed by it. During the hearing the
applicant has brought out sufficient material to show that
it satisfied the conditions laid down in the 80IB of the
Act. The applicant has paid Central Excise duty of
Rs.310.27 crores on manufacturing done by it at Baddi
unit on sales of Rs.573.58 crores during the financial
years 2004-05 to 2008-09. The CIT(DR)s contention
that the manufacturing was done outside Baddi factory
and the Central Excise Duty was paid for manufacturing
at Baddi unit cannot be accepted. The applicant has also
submitted the returns of Excisable goods and availment
of cenvat credit in respect of certain months which
contain details of registration number, manufacture
clearance and duty payable. While working out the
electricity consumption, the learned CIT (DR) has relied
on incomplete information. He has worked out the
production during the financial year 2004-05 on the basis
of some electricity bills enclosed by the applicant.
However, it is seen that the learned CIT(DR) has not
considered the consumption of diesel of Rs.17.55 lakhs
which was used in the generator for manufacturing of
chewing tobacco. The total power and fuel consumption
in manufacturing was Rs.24.2 lakhs as against Rs.4.46
lakhs taken by the CIT(DR). It is seen from the wages
sheet for the month of February, 2005 submitted by the
applicant on 07.03.2012 that there were 25 workers in the
factory with some Supervisors. Besides, there were 136
contract workers also who worked in the factory in
February, 2005. It is noted that assessments for
assessment years 2005-06, 2006-07 and 2007-08 were
done under section 143 (3) of the Act after necessary
verification by the Assessing Officer who allowed
deduction under section 80IB of the Act in the aforesaid
assessment years.
25. After examining the facts on records and the legal
position, we find that the contentions of the Department
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for disallowance of the deduction under Section 80IB is
without any basis or material on records whereas the
applicant has furnished overwhelming
materials/evidences to justify the allowance of such
deductions. Therefore, we are of the considered view
that the applicant is entitled for deduction under Section
80IB of the Act as claimed by it.
26. The learned CIT(DR) submitted that for the
A.Y.2004-05 the factory premises had run for less than 6
months and, therefore, depreciation claimed by the
applicant may be allowed at the rates as per law. The
submission is accepted and the depreciation is to be
allowed accordingly."
7. From the above extracts it can be found that one of the issues that was
raised was that no manufacturing activity or very little manufacturing
activity was carried out by the respondent at its unit at Baddi, Burhanwala
District, Himachal Pradesh and, therefore, the respondents would not be
entitled to a deduction under Section 80-IB of the said Act. It is to be noted
that the Settlement Commission had observed that the respondents have
brought out sufficient material to show that it had satisfied the conditions
laid down in Section 80-IB of the said Act. The respondents have paid
Central Excise duty to the tune of `310.17 crores in respect of the
manufacturing activity carried out by it at Baddi unit in respect of the sales
of `573.58 crores during the financial years 2004-05 to 2008-09.
WP(C) 830/2013 Page 7 of 10
8. It is in this context that the Settlement Commission rejected the
contention of the Revenue that the manufacturing was done outside the
Baddi factory though Central Excise duty was paid in respect of the
clearances made at the Baddi unit. The Settlement Commission came to this
conclusion inasmuch as the department had not been able to produce any
incriminating evidence either found during the search or later which could
substantiate their claim that the respondent was not entitled to the deduction
under Section 80-IB of the said Act.
9. We do not agree with the submission made by Mr Sahni that the
Settlement Commission had not examined and overlooked the material
placed before the Settlement Commission in support of their contentions that
the respondent was not entitled to the deduction under Section 80-IB of
the said Act. On examining Section 80-IB of the said Act it is evident from
the three conditions stipulated in sub-section (2) thereof that until and unless
those three conditions are satisfied, the assessee would not be entitled to the
deduction under Section 80-IB of the said Act. Essentially, the new unit
should not have been made by splitting up or reconstructing an already
existing business; the new business should not have been formed by transfer
if the plant or machinery which had been previously used for the purpose;
the goods manufactured at the new unit should not be included as an article
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specified in the Eleventh Schedule and the new unit should employ 10 or
more employees when it manufactures with the aid of power or employ 20 or
more employees when the manufacturing activities are carried on without the
aid of power. Insofar as these conditions are concerned, there is no material
to show that they have not been satisfied. On the contrary, there is evidence
of the fact that the Assessing Officer, in respect of the assessment years
2005-06, 2006-07 and 2007-08, has allowed the deduction under Section 80-
IB of the said Act. The presumption is that an Assessing Officer is aware of
the conditions stipulated in sub-section (2) of Section 80-IB of the said Act
and that he verifies that those conditions have been met. It is his duty to do
so. In the present case the Assessing Officer allowed the deduction under
Section 80-IB of the said Act for the three assessment years ­ 2005-06,
2006-07 and 2007-08. It can safely be assumed that he had checked and
verified that the conditions stipulated in Section 80-IB (2) had been satisfied.
There is nothing on record to rebut this presumption. Therefore, it cannot be
contended that the conclusion arrived at by the Settlement Commission that
the respondent was entitled to the deduction under Section 80-IB of the said
Act was arbitrary or perverse.
10. In view of the foregoing discussion and in the backdrop of our limited
power of review, no case for interference with the order passed by the
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Settlement Commission has been made out. The writ petition is dismissed.
There shall be no order as to costs.
BADAR DURREZ AHMED, J.
SIDDHARTH MRIDUL, J.
MAY 22, 2014
dn
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